Tata Motors Ltd is preparing to increase production of heavy-duty trucks and buses on expectations of higher demand for such vehicles after two years of decline, said two persons familiar with the auto maker’s plan. Lower inflation and a drop in the price of diesel after it was deregulated has triggered expectations of a pick-up in demand for heavy commercial vehicles, sales of which are a barometer for the larger economy.

Tata Motors plans to produce 7,800-8,000 units of heavy-duty trucks at its Jamshedpur facility in December—the highest in two years, said one of the two persons cited above. Both spoke on condition of anonymity. The company produced 6,400 units in November. It’s also looking at increasing capacity at its Lucknow plant, where it makes buses and trucks, to 4,600 units this month from 3,800 in October, said the person cited above. Sales of medium and heavy commercial vehicles (16-49 tonnes) turned the corner in June after declining for more than two years.

In the seven months to October, heavy-duty truck sales expanded 7.38% to 102,000 units, according to the Society of Indian Automobile Manufacturers (Siam). Over the same period, Tata Motors’ truck sales rose 4% to 59,177 units from a year ago. In an email response to queries from Mint, a spokesperson for Tata Motors said the company calibrates its production in line with demand. “It is true that over the past few months there has been an improvement in truck utilization; hence, the improvement in demand for medium and heavy commercial vehicles,” said the spokesperson.

The decline in truck sales over the past two years mirrored the larger economic downturn, which depressed growth in gross domestic product (GDP) to below-5% levels in the fiscal years ended March 2013 and March 2014. Growth is estimated at 5.4-5.9% for the fiscal that ends in March 2015, according to the finance ministry’s annual Economic Survey. GDP growth was 5.7% in the quarter ended 30 June and 5.3% in the subsequent three months. With the exception of tippers, used in mining applications, truck sales have shown renewed momentum, said Subrata Ray, senior group vice-president at ICRA Ltd.

Even so, industrial output remains sluggish. The Index of Industrial Production (IIP) expanded 2.5% in September. In August and July, IIP expanded 0.5% and 0.4%, respectively. “Our interaction with fleet operators across the country suggests that capacity utilization of trucks has improved,” said Ray, adding that at least 60% of the operators are looking at new vehicles and another 20% want to replace an ageing fleet. A drop in diesel prices, which accounts for half of operating costs for a transporter, is a key driver for the renewed demand, he said.